African Devt Bank Forecasts 2.1% GDP Growth for Nigeria in 2018

Nigeria is in a good position for growth this year, so says the African Development Bank. In its economic outlook for 2018, AfDB says despite slow and difficult recovery from recession and paltry Gross Domestic Product growth in 2017, rising oil prices and output as well as growing agricultural performance stand Nigeria in good stead and place it well to grow in 2018.

After recording negative GDP growth in two successive quarters, Nigeria’s economy was mired in recession in the second quarter of 2016. The country, however, exited its worst economic recession in more than two decades the following year, with growth of 0.55 per cent in the second quarter of 2017. The National Bureau of Statistics, which announced the growth, attributed the economic recovery to improved performances in the oil, agriculture, and manufacturing and trade sectors of the economy.

Launching the 2018 edition of its yearly report, the African Economic Outlook, on Wednesday, at its headquarters in Abidjan, AfDB says there are continued signs of economic recovery in Nigeria from the 2016 recession. It estimates GDP growth at 0.8 per cent in 2017, up from –1.5 per cent in 2016.

The bank, the first to provide headline numbers on Africa’s macroeconomic performance and outlook, says regarding Nigeria, “The outlook beyond is positive, with growth projected at 2.1 per cent in 2018 and 2.5 per cent in 2019. This outlook is anchored in higher oil prices and production, as well as stronger agricultural performance. Oil prices rebounded to an average of $52 per barrel (Brent crude) in 2017 and are projected to reach $54 in 2018, up from $43 per barrel in 2016. Oil production also increased from 1.45 million barrels per day in the first quarter of 2017 to 2.03 million in the third quarter of 2017 following de-escalation of hostilities in the delta region and is expected to remain at the same level in 2018 and 2019, in tandem with the Organisation of the Petroleum Exporting Countries’ production restrictions.”

Detailing the macroeconomic indicators, AfDB says fiscal policy remained expansionary in 2017, as in 2016. It says though the percentage of total spending to GDP declined from 13 per cent in 2014 to 10.3 per cent in 2017, revenues declined more sharply, from 11.4 per cent to 5.6 per cent.

“The budget deficit was estimated at 4.8 per cent in 2017, up from 4.7 per cent in 2016, and is projected to improve to 4.3 per cent in 2018 and 4.1 per cent in 2019, as revenue performance improves,” AfDB states. “At 14 per cent, unemployment remained high in 2017, the same as in 2016, and is expected to decline only slightly in 2018, to 13.5 per cent, as recovery eases production constraints in manufacturing and agriculture.”

Nigeria has operated a macroeconomic policy involving a reduction in money supply, with the monetary policy rate kept at 14 per cent since July 2016, in what the Central Bank of Nigeria explains as an attempt to support the naira, control inflation, and stabilise the economy.

AfDB says the contractionary monetary policy is expected to remain unchanged in 2018. It predicts that inflation, which has remained high and in the double digits, at an estimated 16.2 per cent in 2017, up from 15.6 per cent in 2016, would ease to 13.7 per cent in 2018 and 12 per cent in 2019.

The bank notes the improvement in foreign currency liquidity following the introduction of administrative measures by the CBN since early 2017. The measures include establishment of a distinct trading window for portfolio investors at market-determined rates and introduction of the Nigerian Autonomous Foreign Exchange Rate Fixing, which allows commercial banks to quote forex rates that are close to parallel market rates.

It says, “The naira remained stable for most of 2017 and is expected to strengthen slightly as the economy continues to recover.”

On the tailwinds, AfDB identifies the recent rise in oil prices and increase in oil production as one of the key conditions that would drive growth, as it would deliver badly needed revenues to the government to pursue its economic diversification policies and structural reforms.

“Faithful implementation of the Economic Recovery and Growth Plan (2017–20) holds the promise of weaning the country off its dependence on oil,” AfDB says.

The ERGP focuses on six priority sectors, namely, agriculture; manufacturing; solid minerals, including iron, gold, and coal; services, including information and communication technology, financial services, tourism, and creative industries; construction and real estate; and oil and gas.

On the headwinds, AfDB lists significant challenges that the country still faces to include foreign exchange shortages, disruptions in fuel supply, unreliable power, and insecurity in some parts of the country. It says, “Revenue mobilisation efforts are insufficient; at five per cent, value added tax rates are among the lowest in the world, and revenue administration is inefficient. Poverty is unacceptably high; nearly 80 per cent of Nigeria’s 190 million people live on less than $2 a day.”

The African Economic Outlook provides short-to-medium term forecasts on the development of key macroeconomic indicators as well as analysis on the state of socio-economic challenges for all 54 AfDB member countries.

The president of AfDB, Akinwumi Adesina, says there is a compelling need for accelerated industrialisation in Africa to create jobs, reduce poverty, and promote inclusive economic growth. Citing data from the 2018 African Economic Outlook, Adesina says infrastructure projects are among the most profitable investments any society can make as they “significantly contribute to, propel, and sustain a country’s economic growth. Infrastructure, when well-managed, provides the financial resources to do everything else.”

Emphasising the need for economic diversification, Adesina advocates a shift toward labour-intensive industries, especially in rural areas where about 70 per cent of Africana reside, saying, “Agriculture must be at the forefront of Africa’s industrialisation.”